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The Difference Between IFRS and U.S. GAAP

April 21, 2020

TheDifference Between IFRS and U.S. GAAP

TheDifference Between U.S. GAAP and IFRSs

Theorigin of the International Financial Reporting Standards (IFRSs) canbe traced back to the year 2000. In June 2000 the InternationalAccounting Standard Committee (IASC) was renamed the InternationalAccounting Standards Committee Foundation (IASCF), now known as theIFRS Foundation. The International Accounting Standards Board (IASB)was established in February 2001. The IASB was mandated with approvaland documentation of IFRSs. The IASB is also responsible for theapproval of exposure drafts and other relevant discussion documents(Markelevich, Riley &amp Shaw, 2015).

IFRSsare have been adopted in some countries while other countries use theU.S. Generally Accepted Principles (U.S GAAP). Both systems areacceptable for financial reporting but some differences between themexist. One of the differences is that IFRSs require goodwill to beamortized using one step process. The U.S. GAAP require goodwill tobe amortized using the two-step process (Jeter &amp Chaney, 2015).

Thirdly,exercisable potential voting rights are considered when determiningcontrol by the parent company under IFRSs while under the U.S. GAAPthese rights are not considered. This means that an entity could havecontrol of another entity under IFRSs while no control is recognizedunder U.S. GAAP (Jeter &amp Chaney, 2015).

Theother major difference between the two frameworks regards SpecialPurpose Entities (SPEs) and qualified special purpose Entities(QSPEs). Under IFRSs SPEs can only be consolidated if the reportingentity controls them while QSPEs are not covered. The U.S. GAAPallows consolidation of both SPEs and QSPEs if most of theirsignificant activities are controlled by the reporting entity (Jeter&amp Chaney, 2015).

Lastly,the IFRSs and U.S. GAAP differ on how contingent liabilities arerecognized at acquisition. IFRSs allow contingent liabilities to berecognized during acquisition if their fair value can be dependablymeasured. Under the U.S. GAAP, the contingent liabilities arerecognized if their value can be reasonably estimated (Jeter &ampChaney, 2015).

Inconclusion, both frameworks are acceptable reporting structuresdepending on the jurisdiction of the reporting entity. However, thedifferences which exist between the two frameworks makes financialinformation incomparable. Thus steps should be taken to harmonize thetwo frameworks so that users of financial information can be able tomake informed decisions.

References

Jeter,D. C., &amp Chaney, P. K. (2015). AdvancedAccounting 6thEdition.NewJersey, NJ: John Wiley &amp Sons.

Markelevich,A., Riley, T., &amp Shaw, L. (2015). Towards Harmonizing ReportingStandards and Communication of International Financial Information:The Status and the Role of IFRS and XBRL.&nbspJournalof Knowledge Globalization,&nbsp8(2).

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